IMF chief looking beyond repairing eurozone crisis

DEBT WOES:Christine Lagarde says European policymakers must build on their policy initiatives to repair their banking system and economies

The Guardian, London

IMF Managing Director Christine Lagarde smiles while speaking at the Brookings Institution in Washington on Thursday.

Photo: Bloomberg

IMF Managing Director Christine Lagarde has praised Europe’s efforts to tackle its sovereign-debt crisis and said the “breathing space” should be used to complete the repair work on the global economy.

Speaking ahead of next week’s spring meetings of the IMF and the World Bank, Lagarde said the policy moves taken in Europe had helped ease the strain and meant the IMF no longer needed quite so big a war chest to deal with the problems left behind by the financial crisis and recession.

“The steps taken by the Europeans in recent months are a timely reminder of the power of policy resolve and action,” Lagarde said in a speech at the Brookings Institution in Washington.

She urged European policymakers to “keep up and build on” their efforts, including through action in individual countries, support from the European Central Bank [ECB], repairing the banking system and fiscal integration.”

“The much-expected decision of euro area ministers to strengthen the European financial firewall has also been crucial,” she said.

Lagarde’s comments came as Italy was forced to pay sharply higher interest rates when it auctioned 5 billion euros (US$6.59 billion) worth of bonds on Thursday, underlining anxiety in financial markets about the health of the eurozone’s crisis-hit economies.

The Italian government, which is pushing through a series of unpopular economic reformsh, raised 4.88 billion euros from investors, but was forced to pay an average yield of 3.92 percent for three-year loans, far higher than the previous auction last month.

Markets were rattled by the tricky sale, although bond yields fell in afternoon trading, amid rumors that the ECB might have resumed its emergency purchases of Spanish and Italian bonds in a bid to prevent borrowing costs reaching unsustainable levels.

With Spain still in the markets’ sights too, Spanish Prime Minister Mariano Rajoy repeated his insistence that his country would not need financial aid.

“Nobody is considering a bailout, it is on nobody’s agenda,” he told a press conference in Poland, where he was on an official visit.

He also said he had spoken with Italian Prime Minister Mario Monti, who had denied blaming Spain’s travails for rocketing Italian bond yields. Meanwhile, unemployment in Greece rose to 21.8 percent, up from 12.5 percent two years ago.

Soros Fund Management chairman George Soros said that Europe’s “deflationary debt trap threatens to destroy a still incomplete political union.”

In an article in the Financial Times, Soros said the euro had entered a “more lethal phase” and outlined a series of measures to solve the crisis — including an idea that all countries should be able to refinance their debt at the same interest rate.